Thing is Im pretty sure that subplot was never meant to go anywhere. It was just there because Advent Children was coming out so they wanted to promote it in KH2.
Hot take: I honestly think there is no continuation of this sub-plot. They clashed swords, jumped into the air and disappeared into a bright light. Sora then says that they disappeared to another world and are having a great battle. I don't think they need to continue from there.
It'd be great if they did bring Cloud and Sephiroth back, but I'm not bothered by it. I'd rather some new FF superbosses like maybe Seymour or Ardyn. Step out of the box for a bit.